FACTOR MOBILITY AND INTERNATIONAL-TRADE

This paper develops a two-country model of trade and factor mobility, in which capital is sector-specific but internationally mobile. The mo del avoids the indeterminacy and propensity to specialize of Heckscher -Ohlin models and exhibits a rich variety of responses to exogenous sh ocks, including transfers, capital taxes, and tariffs. The results thr ow light on the relationship between goods and factor trade, reconcili ng the conflicting views of previous writers. It is argued that the mo del holds out the possibility of a new paradigm in international trade theory in which international factor movements play a central rather than a peripheral role.